The tiny island country of Cyprus is in need of a 10 billion euro ($13 billion) bailout. Its financial woes had seemed something of a sideshow compared to that of its far larger neighbor, Greece, until last week, when the troika of the European Union, European Central Bank (ECB) and the International Monetary Fund (IMF) informed Cyprus that, in order to qualify for the bailout, small accountholders with deposits of 100,000 euros must pay a one-time tax of 6 percent.
Cyprus’ residents have taken to the streets and said a plain and simple “no” to the plan and on Tuesday, the country’s parliament officially voted down the measure. The country now has until Monday to figure out how to raise 5.8 billion euros, to continue to qualify for low-interest loans to keep its banks afloat — those banks having outstanding loans or other money at risk to the total of 152 billion euros (which is eight times the size of Cyprus’ GDP).
Cyprian banks have frozen all accounts and are closed but have kept ATMs stocked with cash under the order of the authorities. People have been lining up in Nicosia, Cyprus’ capital, and other cities to withdraw (or try to) their savings. There have been protests in the streets and clashes in the streets with riot police.
Berlin has said that Cyprus is “not systematically important.” But here’s some reasons to pay attention to Cyprus.
1) Cyprus’ economy is small but it still could still drag down the economy of the EU with its 27 member nations. The euro zone economies are still recovering and, at the end of 2012, the currency union actually fell deeper into recession as its largest economies in Germany and France shrank.
Without the bailout package, Cyprus’ economy could collapse and the country might have to leave the E.U. This could set off contagion by lowering investors’ confidence and bringing down other already-struggling EU economies such as that of Greece and Spain.
2) The U.S. has increased its financial ties to the euro zone. This year, it is strengthening these via a $613 billion free-trade deal. E.U.-U.S. trade has been on the rise and now accounts for 30 percent of global trade. E.U. leaders are indeed “so eager to have a larger American audience for their products that they have said there’s no reason .. tariffs can’t go straight down to zero,” says the Guardian – an arrangement that stands to benefit European countries more than the U.S.
3) Cyprus is a tax haven for, among others, rich Russians. For this reason, Nikos Chrysoloras in the Guardian advises us to exercise some caution in supporting the defeat of the tax levy measure by Cyprus’ parliament. Cyprians were not rejecting harsh austerity measures. Part of the agreement that the parliament rejected included a condition under which “assets belonging to foreign oligarchs and tycoons were subjected to a significant haircut (15.6%).” The country’s banks are full of euros belonging to residents of, among other places, Moscow. While ordinary residents of Cyprus are worrying about their savings, others are avoiding paying the taxes they can.
4) Economic turmoil is no friend to rare wildlife who rely on government protections. Cyprus is home to a number of species that are threatened, including the critically endangered Mediterranean monk seal, of which fewer than 600 remain.
In the summer, hundreds of endangered turtles – 30 percent of the nests of loggerhead turtles and more than 20 percent of those of the green turtle – hatch on Cyprus’ beaches; only one out of a thousand make it from the beach to the ocean. Environmentalists have sought to pressure politicians to limit development to preserve the beaches. Watching the turtles hatch has become a popular tourist attraction and given Cyprus’ economic issues, tourism is more important than ever.
Cyprus has until Monday to secure the funds needed for the bailout.
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